Turkish lira weakens

ISTANBUL, Dec 4, (RTRS): Turkey’s lira weakened some three percent on Tuesday amid increased expectations of an early loosening in monetary policy after data showed the country’s annual inflation rate eased in November from a 15-year peak.

The lira fell sharply earlier this year due to investors’ concerns over the central bank’s ability to respond adequately to high inflation as it faces pressure from President Tayyip Erdogan to lower borrowing costs.

Those concerns were partially assuaged by a massive 6.25 percentage point rate hike in September that helped the lira to reverse some losses. The currency had fallen by as much as 47 percent against the dollar in the year to August.

Efforts to mend strained diplomatic relations with the United States have also supported the lira.

Official data showed on Monday that annual inflation eased in November to 21.62 percent from a 15-year peak, on the back of tax cuts, discounted products and a stronger lira.

The fall in inflation has triggered speculation that the central bank will cut rates earlier than anticipated, said Piotr Matys, an emerging market forex strategist at Rabobank.

“If they indicate that they may start lowering interest rates in Q1, the lira may extend its losses,” he said, when asked about his expectations for the central bank’s rate-setting meeting next week. He added that the lira could stabilise if the central bank reassures markets that it will keep policy tight.

The monetary policy committee will announce its rate decision on Dec. 13 at 1100 GMT.

The lira weakened to 5.4140 against the dollar by 1513 GMT from Monday’s close of 5.25. It reached 5.46 earlier in the day, its lowest point in around two and a half weeks.